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New Mercer gold report now available

News Arnulf Hinkel, financial journalist – 19.01.2024

The completely updated Mercer study “Gold as an asset class for institutional investors” is available free of charge to all interested investors on the Xetra-Gold website in the “Downloads” section. Last published in 2021, it includes the latest research results from long-term studies, offering insights both to private and institutional gold investors, while the chapter “Framework for investors subject to regulation” is aimed exclusively at institutional investors. The study covers a period of 24 years and is therefore highly conclusive.

How do correlations between asset classes change in times of crisis?

A special characteristic of gold as part of an investment portfolio is the fact that its correlation to equities and bonds changes when a regular market phase transforms into a so-called “stress regime” due to economic or geopolitical crises. Mercer has examined this case by applying the correlations of EU equities with high market capitalisation and gold, based on data spanning more than two decades. The result is a confirmation of this thesis: in the transition from a regular market to a crisis phase, the correlation of equities to gold changed from 0.51 (a quite high correlation, i.e. both asset classes move in the same direction) to -0.41, i.e. a relatively strong divergence in price trends.

Gold allocations improve the risk/return level 

According to the study, a gold allocation of just one per cent of the portfolio value can reduce the conditional value at risk (CVaR) in times of crisis. The CVaR describes the average percentage loss of the portfolio value within the lower end of the return distribution. At the same time, however, the study also shows that higher allocations of gold, from 10.7 to 17 per cent of the portfolio value, offer a clear benefit across the entire return spectrum examined. By adding gold to an investment portfolio consisting of equities and bonds, any target return can be achieved with a lower risk of loss – or CVaR.
 

The entire report is available here: Gold as an asset class for institutional investors

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